Retirement Pulse reports most think they are worse off financially than 12 months ago

The Retirement Essentials’ November 2022 Retirement Pulse posed the question:

Do you agree or disagree with this statement:

‘I feel better off financially that I did 12 months ago’ 

A substantial majority (60%) disagreed and only 40% agreed (numbers have been adjusted to remove the nearly 25% who neither agreed nor disagreed)

There are clearly many reasons why people might feel worse off. With the October quarter Consumer Price Index confirming that inflation is running at 6.9% year-on-year, it’s difficult to feel positive about controlling household expenses. Stock market volatility, both here and overseas, also suggests our super balances and the value of private investments are moving around a lot. Similarly, if you are invested in residential property, CoreLogic data shows a decline in prices seven months in a row.

It’s far from a pretty picture.

But feelings can be false friends when it comes to our finances.

And it’s really only facts we should follow when managing money.

Let’s explore some of the actual changes, over the past year, related to those things that affect retirement income.

Age Pension

As we reported in October, in real terms, indexation to the base rate of the Age Pension has resulted in a $1,534 and $2,314 increase for singles and couple respectively. Additionally, an expanded Work Bonus allowance (from $7,800 to $11,800 until June 30 2023) means additional income can now be earned in wages or salary without threatening your entitlements. Whilst this doesn’t translate to actual cash in hand, it does enable you to supplement your income without penalties.

So if your main form of income is the Age Pension, it has increased, or at least kept pace with inflation.

Self-funded retirees

If you are self-funded and are now able to apply for a Commonwealth Seniors Health Card (CSHC), you will now be able to gain concessions in prescription medicines, health services, some transport costs and, depending upon your postcode, other utility benefits.

Invested in cash?

As we reported last week, those invested in transaction accounts are most likely earning nil interest. But if you are invested in a term deposit, you will have noticed the interest rates every so slowly increasing. Compared to this time last year, they have improved a lot, so hopefully you are actually earning more from this income stream

Your super balances

Year-on-year returns for super funds are starting to creep back into positive territory and over the longer term super funds still continue to perform very well.

But what does this mean for you?

No two retirements look the same. And a diversified retirement portfolio, one including super, private savings, property and some cash, will always show mixed performance over these asset classes. So how can you check your individual situation?

A monthly net assets and income v expenditure review is a good idea, and not as much work as it may sound.

What’s involved?

Start by creating an excel spreadsheet you can update.

List your assets (savings, super, home, other investments or significant assets) and create a subtotal. Get this information from your account balances and use the local government rates assessment on your property, as this is very conservative.

Next list any liabilities (mortgages, outstanding loans or other amounts you owe), subtotal these amounts and then subtract them from your assets total.

And there is your guide to your net worth, which you can review in a month’s time by punching in new numbers. Consider running new columns each month so you can see a longer term trend –i.e. is the bottom line increasing, or decreasing?

Income versus spending

In a separate worksheet, list all different forms of income This may include an Age Pension, an Account-Based Pension payment, other retirement income streams, wages, interest etc. Total this amount.

Next download all credit or debit card expenditure plus cash outlays, and total this for the calendar month.

Subtract the outgoings from your incomings.

How does it look? If it is a minus amount, go back and review the categories of expenditure – perhaps there was an annual holiday that would be better treated across a 12-month expenditure period? Maybe lumpy items like vehicle registration or home insurance are skewing these totals? Whatever it is, you can always divide this amount by 12 and apply it equally across the twelve month period basis so your budget is more realistic.

The hour or so it takes to run this review every month is well worth it. It helps you know how your spending aligns with your income – or doesn’t.

It also confirms whether your assets are increasing over time – or not.

Either way, knowledge is power and it is only by knowing whether you factually ARE better or worse off, that you can take next steps to manage this situation.

What do you think?

Are you one of the 40% who is feeling better off? If so, what do you believe has contributed to this happy situation?

Or are you one of the majority who feels worse off? If so, what in particular is dragging you backwards financially?

If you want to talk to one of our advisers about your likely income in retirement you can book a consultation here.

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